LOW Lowe's Companies Inc

LNG Cheniere Energy Inc

LNC Lincoln National Corp

LITE Lumentum Holdings Inc

LH Laboratory Corporation of America Holdings

LEN.B Lennar Corp

Bank of America Corporation is a bank holding company and a financial holding company. The Company is a financial institution, serving individual consumers and others with a range of banking, investing, asset management and other financial and risk management products and services. The Company, through its banking and various non-bank subsidiaries, throughout the United States and in international markets, provides a range of banking and non-bank financial services and products through four business segments: Consumer Banking, which comprises Deposits and Consumer Lending; Global Wealth & Investment Management, which consists of two primary businesses: Merrill Lynch Global Wealth Management and U.S. Trust, Bank of America Private Wealth Management; Global Banking, which provides a range of lending-related products and services; Global Markets, which offers sales and trading services, and All Other, which consists of equity investments, residual expense allocations and other.

UPDATE: You should avoid shares of these banks with too much oil and gas exposure

7:20 am ET March 11, 2020(MarketWatch)

Print

By Philip van Doorn, MarketWatch

Oil prices are now so low, banks' bad loans to the energy sector may lead to dividend cuts -- or worse

Investors had better worry about banks with significant exposure to the oil and natural gas industry, in the wake of Saudi Arabia's decision to cut oil prices and increase production at a time of greatly reduced demand.

That adds to a pile of other concerns for banks, particularly the plunge in interest rates as the coronavirus continues to spread across the world.

Analysts at Keefe, Bruyette & Woods published a list March 8 of U.S. banks with the largest amount of credit exposure to tangible common equity (TCE) -- the measure of capital that is particularly useful to common shareholders, because it tells them what their stake in the bank is really worth.

Very high energy-industry credit exposure relative to TCE could signal trouble if borrowers begin to default en masse, because then the banks need to immediately add to loan-loss reserves, which would wipe out profits and lower equity. It could lead banks to suspend share buybacks, stop increasing dividends and even lower dividend payouts.

Here's KBW's list of U.S. banks whose loan exposure to the energy industry are highest relative to TCE as of Dec. 31, 2019:

-- Citigroup's (C) oil and gas loan exposure was 15% of TCE as of Dec. 31, according to KBW. On page 70 of the company's 10-K (https://www.sec.gov/ix?doc=/Archives/edgar/data/831001/000083100120000031/c-12312019x10k.htm), Citi said energy and commodities credits made up 8% of its total corporate credit portfolio as of Dec. 31. The company only provided that percentage, and not a dollar total for industry exposure. However, 8% of its total corporate credit exposure of $692 billion would be $55.36 billion, or 37% of its $148.81 billion in TCE. Citi also said 9% of its $35.2 billion in hedge protection for its corporate credit portfolio was for energy and commodities credits. That would be $3.27 billion in hedge protection for credit exposure to energy and commodities, for net exposure of $52.1 billion, or 35% of TCE.

Richard Bove, a sell-side bank analyst with several decades of experience who works for Odeon Capital Group, says investors should avoid bank stocks as a group because of the disruption to their business models from low interest rates and evolving technology for products and services that have become commodities.

He detailed all those concerns in a report Feb. 3, well before the S&P 500 Index hit its last record high Feb. 19.

On March 8, after Saudi Arabia announced its oil price cuts and plans to increase production, Bove sent a note to clients expressing particular concern for the big four.

"One might argue that both J.P. Morgan and Citigroup were built on oil," he wrote.

Aside from the oil-industry risk, Bove reiterated that bank stocks had been performing poorly because of pressure on their net interest margins, increasing loan losses and "most importantly, price deflation across their product mix."

In note about J.P. Morgan on March 7, Bove expressed concern that CEO Jamie Dimon might reduce his responsibilities at the nation's largest bank following his heart surgery, possibly giving up the CEO title.

"The likelihood that he will continue as the hands-on leader of the company is relatively low," he wrote.

If Dimon steps down as CEO, Bove believes JPM "will definitely be hurt." However, he reiterated his "buy" recommendation for the bank's stock because "many funds must own some bank stocks and, if so, this is the one they should own."

Market data accompanied by is delayed by at least 15 minutes for NASDAQ, NYSE MKT, NYSE, and options. Duration of the delay for other exchanges varies.

Market data and information provided by Morningstar.

Options are not suitable for all investors as the special risks inherent to options trading may
expose investors to potentially rapid and substantial losses.Please read Characteristics and Risks of Standard Options before investing in options.